A Netflix-Subscription-Like Electricity Bill

Photo by Nuno Marques on Unsplash

The Problem

The mounting levels of behind the meter rooftop solar generation are swiftly tousling the current utility revenue model. Prosumers (customers with rooftop solar are usually referred to as prosumers: producers+consumers) under net energy metering (you sell your excess power to utility with the same purchasing price) are simply scoring a lot of bill savings, which adds more burdens on utilities to recover their considerable fixed costs. The reduction in prosumers total consumption does not proportionally reduce the cost to serve them. This misalignment pushed many utilities to thoroughly revise their metering policies and rate designs (see here).

The Solution

So how can we fix this utility revenue shortfall problem ? There are several and completely different methods to approach balancing bill savings, with a tradeoff in every method.

Frank P. Ramsey (source: Cambridge Wittgenstein archive)
  1. The issue of revenue shortfall and cost shifts is minimized. The reduction of the price markup (which is almost zero under Ramsey two-part pricing) directly curtails the bill savings achieved by prosumers, which in turn elongates the payback time on their rooftop solar investment.

The Drawbacks

Although Ramsey two-part pricing is very appealing to utilities, especially those on the brink of bankruptcy, the tariff comes with significant drawback to the electricity industry and the environment.

  1. The adoption of rooftop solar will be stalled or at least severely affected. The consumer’s adoption decisions are mainly driven by the bill savings they can achieve and therefore systems’ payback time, which is very long given the small price markup.

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Ahmed S. Alahmed

Ahmed S. Alahmed

Electrical and Computer Engineering PhD student. Interested in electricity markets, optimization, mathematical analysis and economics. https://www.ahmedsa.me